Is your crypto safe? What Binance's $6.3 billion hack means for bitcoin investors.
By Isabel Wang and Joseph AdinolfiA look at how safe your money really is when even the world's largest cryptocurrency exchange can be breachedBitcoin and related stocks tumbled Friday after a record hack of the cryptocurrency platform BinanceA record $6.3 billion hack of Binance has put one of the crypto world's oldest risks back in the spotlight: How safe is investors' money when even the world's largest cryptocurrency exchange can be breached?Prices of bitcoin and Ethereum were tumbling on Friday after Binance disclosed the hack - described as the largest relating to cryptocurrencies on record - that raises new concerns about whether investors can count on crypto exchanges to keep their assets safe.Bitcoin (BTCUSD) was down 2.3% at $76,846 a coin in recent trading, while Ethereum (ETHUSD) was 1.2% lower, at $2,227, according to FactSet data.Binance promised to cover all customer losses, and vowed to restart withdrawals within two days after freezing them as a security precaution. By working with industry partners, the exchange also managed to freeze about $3 billion in stolen assets, and the company has already started the recovery process, a Binance spokesperson told MarketWatch.Nonetheless, the hack underscores a persistent challenge facing the cryptocurrency industry: convincing investors that their assets are safe in an ecosystem that continues to be plagued by security breaches."With certainty, we [investors] do have an inaccurate assessment of what occurred and the losses that happened in the market," said Ryan Kirkley, co-founder and CEO at Global Settlement Network Institutional, a blockchain infrastructure firm. "Bitcoin is not recoverable."In another statement to MarketWatch, Binance said it has already reserved over $6.34 billion of company funds to cover this incident, while $5 billion of these funds are already held in the exact token assets that were impacted. They are also completing the purchase of the remaining amount by buying token assets through market channels and over-the-counter channels, which may take longer, according to a Binance spokesperson.Cybersecurity research firm TRM Labs said the attacker, which it identified as TraderTraitor, an elite North Korean hacking unit, converted a large portion of the stolen funds into assets that are beyond any issuer's ability to claw them back.In other words, promising depositors that "everything is under control" ignores the irreversible nature of blockchain transactions, Kirkley told MarketWatch via phone on Friday.Putting money into the crypto market through an exchange is fundamentally different from investing in traditional, regulated markets, such as stocks and bonds. If your stockbroker goes bankrupt or fraud occurs, the Securities Investor Protection Corporation can protect your portfolio up to $500,000. However, crypto custodians, exchanges, brokers, wallet providers and neobanks often don't carry federal deposit insurance."Binance's ability to swallow what will be 5% of their entire holdings is remarkable, if they're able to do it, but to say they're able to do it without there being downstream sales and liquidations will be a very unlikely thing to happen," Kirkley added."We're talking about the world's largest crypto exchange relying on emergency freezes and reimbursement promises to contain a multibillion-dollar incident. That's a serious problem for an industry asking institutions to trust it with substantially more capital," Kirkley said.The Binance hack isn't the only notable security incident to hit the crypto industry lately. Just last month, Bitget said that crypto worth roughly $350 million had been stolen from the platform, while a record $1.5 billion worth of Ethereum was stolen from the exchange Bybit early last year.The onus is now on exchanges to prove customers' funds are secure. That's why until there is greater clarity around how this hack occurred, it is reasonable for investors to reassess how much capital they need to keep on the platform versus what can be held elsewhere, said Sean Farrell, head of digital asset strategy at Fundstrat.Shares of crypto-related stocks were under pressure on Friday. Strategy (MSTR), Circle Internet Group (CRCL) and Coinbase (COIN) were all falling at least 9%, while shares of Robinhood (HOOD) were off nearly 10%, according to FactSet data.Separately, Polymarket temporarily halted trading on its international platform Thursday after hackers exploited an engineering flaw to drain between $2.5 million and $2.7 million from over 700 users' wallets. Polymarket has a data partnership with Dow Jones, the publisher of MarketWatch.Hacks across the crypto industry have further dampened investor appetite for the once-popular risk asset. It has struggled in October after a late-summer rally brought bitcoin's price back above $70,000 for the first time in about three months. A number of other factors had been weighing on sentiment in the market, including expectations for more Federal Reserve interest-rate hikes in 2026, as well as fears that the voracious artificial-intelligence spending spree might not pay off.Barbara Kollmeyer contributed-Isabel Wang -Joseph AdinolfiThis content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.